Why Small Companies Fail

No small company wants to go out of business, yet many do. And the younger the company, the greater the likelihood that it will.

According to the SBA Office of Advocacy (PDF), about two-thirds of businesses with employees survive at least two years, but only 50 percent make it to the five-year mark and just one-third celebrate their 10-year anniversary.

The rates of companies that go out of business have changed little over the past 20 years, the SBA says, and are consistent across a range of industries, including manufacturing, retail trade, food services, hotels and construction.

Why do small companies fail and go out of business?

Unfortunately, the reasons are many and all too common. Here are a few to consider:

Failure to Advertise and Market

An adage says, “When business is good, it pays to advertise; when business is bad, you have to advertise.”
Many companies go out of business purely because the owner failed to promote and market. The “if you build it, they will come” mentality doesn’t work in an age when consumers can choose from among a multiplicity of options. You have to get your message seen and heard.

While traditional methods of advertising are still useful, one of the best ways to market your business is with a website. Even in 2016, nearly half (46 percent) of all small businesses do not have one, according to a report from the research firm Clutch. So just by creating a site, which you can do using any number of self-service platforms, you put yourself ahead of many of your competitors.

While you’re at it, set up profiles on social networks where your customers gather. Also, start an email newsletter and advertise on Google and Facebook — both of which are inexpensive ways to build a presence online.

InSilico’s websites start at $3,000.  If you think you can’t afford a website because you’ve received a quote from another local agency for over $10,000 – please don’t get disheartened.  That’s exactly why we started our company.

Lack of Differentiation

You’ve heard of the term, “Unique Value Proposition” (UVP, for short). That describes the qualities, characteristics, products or services that differentiate a business from its competitors. The problem is, too few businesses actually have a UVP, or they fail to make it clear what theirs is — probably because they don’t know themselves.

To determine your value proposition, use a tool like the Value Proposition Canvas, which makes it explicit how you create value for your customers and even helps you to design products and services your customers want. Once you know the UVP, communicate it clearly, to customers and staff.

Too often, we see clients who only want to focus on what they do – not WHY they do it.  For example, a local bakery opened up using a unique recipe from a historical era in our country’s history. They incorporated a lot of decor from the same era as well.  However, they failed to embrace this as a differential, so they became lost in the shuffle of all the other bakeries in the area.  Their friends boosted their online reputation scores in the beginning, helping them grow quickly. However, too many customers did not understand the different texture, shape, and concept of their product, resulting in a declining reputation and their once-busy bakery is now often empty for extended periods of time.

We encourage all brands to find their “why” and promote the snot out of it.

Underestimating the Competition

A final reason worth mentioning for why companies go out of business is underestimating the competition.
Even if you have a sound business model, plenty of funds to operate and the necessary management skills to be successful, you still face one daunting challenge: the competition.

You may be a David surrounded by several Goliaths; that’s particularly true if you’re in the retail trade, located where there is an abundance of big box stores.  Also, you have to consider disruptive startups who may be building a better, cheaper, faster, more convenient, higher-quality mousetrap.  To increase your chance of success, conduct a competitive analysis as part of your overall market analysis. Assess your competitor’s strengths and weaknesses and implement strategies to improve your competitive advantage.

One of the most stomach-turning reasons we have to mark a proposal as a “closed – lost” opportunity in our CRM tool is “Client does not need marketing; has significant market share”.  Recently, we met with the owner of a local landscaping company who bragged that his competition has to take out of town jobs, because his company “owns” the major thoroughfare through town.  This person name-dropped every large chain brand we have along the busy highway, and said there’s no need to invest in a better website (despite spending 20 minutes telling us how much he hates it and how ugly it is), and there’s no reason to even make a Facebook page for the business, because they’re known for their reputation.  Unfortunately, despite having all of the landscaping capabilities local competitors have, not very many people know that this company can access the same materials, because they don’t have a show room or physical location open to the general public. Plus, there’s nothing online saying they have these abilities.

The sad fact is, we already know 2017 isn’t off to a good start for large national companies.  The fact that the Parkersburg/Vienna/Marietta area “big box” stores are going out of business almost weekly is frightening.  Either their customer base will continue to dry up quickly and they’ll contact us for help in the near future, or – hopefully – new brands come to the area and this person can recoup some of the business lost.

Sadly, with a 2 – or – 3 star review online, and an unwillingness to invest in marketing/reputation management, this business owner may lose business to their competitors with a larger digital footprint that actively manages their online reputations.  If out-of-the-area corporate executives are researching companies, they’re not going to pick a contractor with a 10+ year outdated website, no online presence, no management of their poor reputation, and the wrong address/number listed on an unclaimed search engine page.  They’re going to pick the business that’s got their digital www.emoji-quiz.org_363_674669 together.


How can InSilico help your brand?  Ask us!  We’d love to chat with you!